Competition lawyer Professor Frank Zumbo studied food prices in the OECD from 2000 and found price increases in Australia at 41.3% were the third highest behind only New Zealand and South Korea. He had no doubt the evil duopoly of Coles and Woolworths was to blame.
Graeme Samuel, the chairman of the ACCC, was more inclined to blame the drought and “other factors” pointing out also that in fresh food the market share of Woolworths and Coles was probably less than 50%.
I heard Choice supporting Zumbo and the Retail Association supporting Samuels. Stephen King doubts the duopoly argument and points out that prices have risen faster in Britain in the last five years.
I had a look at CommSec research to find that Wesfarmers, owners of Coles, had a net profit margin of 3.2% while Woolworth’s was similar but slightly higher at 3.7%. I know an investment adviser who won’t buy a company unless these values are up around 12-14%.
Wesfarmers, of course, owns other businesses, notably a couple of coal mines. But it is now largely a retailer, with Coles the largest business. One would think that sans the coal mines margins would be lower. Woolworths also owns other businesses albeit all retailers as far as I know.
I think if you asked farmers and other producers they wouldn’t class either of the retail giants as generous in what they pay.
Both are increasingly being kept honest by Aldi.
Roy Morgan has recently had a look customer satisfaction in the grocery sector. Coles and Woolworths are shaded by Aldi, but satisfaction rates of about 85% seem to me quite high. The banks would dream about levels like those.
I note that Prof Zumbo has offered no proof for his assertions about the duopoly as cause of the price hikes. He may have proof, but all we’ve got is assertion. Whatever the reasons, and I have no idea, there seems to me no evidence of net price gouging by the big players.
Something has been made of the fact that we now import more of our horticultural produce, now being net importers. But I seem to recall that the Australian dollar was very low around 2000, down around the 50c mark. This should make imports cheaper now.
Perhaps nthere was some cherry picking, perhaps inadvertent, in choosing the interval Zumbo chose. This article states that world food prices rose by 75% from 2005 to 2008.
Interesting… did they consider the effect of demand for basic commodities in that analysis? Were all the countries with the largest price rises exporters of food? I’ve heard much wailing from New Zealanders about the effect of international demand for cheese on local prices… maybe in conjunction with the drought the same happened in Oz?
sg, in answer to your questions I don’t know, but I understand that the export price usually determines the local price for everything, including gas, for example.
Would be useful if there was a breakdown which showed increases of processed and unprocessed food separately since Coles/Woolworths are not so dominant in the fresh food sector.
Any mention on the likely impacts of a CRPS/cap and trade/Carbon taxes on the prices or availability of foods in the future?
If the energy costs of growing/processing/packaging and transporting foodstuffs increases then surely this will have a cumulative effect on food prices much higher than our duopoly can gouge out?
Interesting and balanced piece – thanks Brian.
I’d throw in a couple of other potential impacts on the level of food prices in Australia vis-à-vis those of many other countries.
One is the triumph of the Luddites in Australia in regard to introduction of GM crops which are widely grown in other countries, and have demonstrated cost (as well as environmental) benefits.
Second is the way Australia barefacedly – and in complete disregard for its legal commitments under the WTO treaty – uses quarantine as a trade barrier, keeping out cheaper imports of food to the benefit of the constituency of the Queensland Agrarian Socialist Party aka the Nats and the detriment of every consumer in the country.
No idea what the total cost impact would be. But I have seen an ABARE estimate of 9-10% cost savings possible on the introduction of GM varieties of broadacre crops like wheat and canola, and FAO figures showing that NZ apples – which the current quarantine ban is largely aimed at – are less than half the cost of Australian apples.
The quotes from Zumbo come from the ABC of course. Given its preference for ideology over accuracy it is hardly surprising it chooses to lay into the evil capitalists. It is far from inconceivable that they have cherry-picked his report to this end.
“Second is the way Australia barefacedly – and in complete disregard for its legal commitments under the WTO treaty – uses quarantine as a trade barrier, keeping out cheaper imports of food to the benefit of the constituency of the Queensland Agrarian Socialist Party aka the Nats and the detriment of every consumer in the country.”
.
With regard to the cattle industry we are the second cheapest producer.Argentina and other South American countries are cheaper.They have Foot and Mouth endemically and this restricts their access to premium markets.
This particular barrier is completely defensible with regard to beef imports.
Recently action has been taken to allow beef from countries which have had BSE entry to Australia. It is a response to a treaty apparently and won’t present a major problem as I understand things as our beef is affordable compared to possible imports from those countries with a suitable disease status.
Price Control?
[runs away]
OK Murph, it was a rather sweeping statement I agree, but I wasn’t intending to suggest that all quarantine barriers are indefensible, and no doubt you are right in regard to foot and mouth. It is a case by case judgment in regard to different products and sources, but there are certainly some questionable import bans out there eg on apples and bananas.
Not sure that the beef industry’s hands are totally clean either. The Beef Association certainly whinged mightily the other day when an entirely sensible decision about easing BSE-based restrictions was made, and a basis for the whinge was that they had been hiding behind those restrictions to protect themselves from US imports with which they could not compete on price and quality.
wozza quarantine controls wouldn’t explain increases in price over and above other countries in a given period unless they had become noticeably stricter than in other countries over that time. Even then, given the effect of foot-and-mouth disease and mad cow on beef sales in significant Australian markets like Japan it’s unlikely that quarantine controls have benefited just the agrarian socialists.
I doubt there’s much evidence that GM would have lowered prices that much, and do we have any evidence that our market share has been affected by not using it?
Wozza, the fact that you regard ABARE as a credible source on anything kind of blows the rest of your argument out of the water.
Wozza, as far as I can see there is a bias towards trade in our biosecurity system.
Zumbo was the ‘brains’ behind Barnaby Joyce’s unintentionally hilarious ‘Birdsville Amendment’ (to the TPA) that would have prevented non-predatory discounting across huge swathes of the Australian economy, to the benefit of big retailers everywhere. He is all over the place, and he doesn’t even know it.
BBB
David Irving (no relation), the fact that the only tool in your kitbag of logical weapons appears to be the ad hom, smear the source without evidence, consistently blows your arguments on almost anything you address out of the water.
SG, sort of agree, I’m not suggesting that quarantine is a major influence across the board, but the fact is that (though many people around here prefer not to believe it), trade does lower prices and anything that reduces the potential for trade therefore keeps prices to some degree higher than they need be. No-one who works in the trade policy area will deny that Australia has about the most restricitve quarantine regime in the world; its impact on keeping prices higher will tehrefore be comparatively greater than those of other countries.
Wozza, ABARE have been so wrong so many times that it’s difficult to know where to start. (I’m not going to bother this morning. Maybe later.) It’s their belief that endless growth is possible that makes everything else they say suspect, at least.
The fact that they are occasionally correct is by chance rather than design.
Wozza, I agree with the comment about prices. But Australia has more to protect than other countries in terms of a relatively disease-free environment. Other countries think that because they are kacked up with every disease under the sun, so should we be.
I was agreeably surprised with the recent decision on bananas. The Philippines has threatened to take us to the WTO as has NZ over apples, which they are perfectly entitled to do. But even here there is a bias towards trade, as WTO panels tend to be made up of trade lawyers rather than scientists.
Brian (and I promise this my last contribution on the particular matter, since if not quite O/T I know that quarantine is a small slice of the initial argument), I simply don’t agree that there is a bias towards trade in resolving disputes around quarantine. The WTO, to take your example, requires quarantine decisions to be based on science, and its dispute settlement processes are in this area accordingly based on weighing up the scientific evidence on disease/pest threats (they are also based on an enormous amount of bureaucrac and procedural delays which drag dispute settlement on for ever, but that is another issue and anyway helps ensure that trade concerns are not the determining factor since shonky science doesn’t get called to timely account).
As my small illustration of where the “bias” lies, I give you a quote from the Chairman of the Australian Beef Association on 21 October, protesting against a slight easing of quarantine rules as they apply to BSE: “Now our industry faces annihilation at the hands of the USA, a country which [is] currently selling beef to their consumers at a much lower price than Australian consumers pay….. we will see top Hotels and Restaurants bringing in US Prime and Choice grade beef. Australia can’t match these cuts.”
Does that sound to you like a man arguing that an import restriction was totally science-based, or a man arguing to maintain an import restriction to subsidise his members and put consumer prices up?
No, Wozza, it doesn’t but he is an industry representative using any argument he thinks will fly. I don’t know the full story on US beef, but you’d expect it to benefit from domestic subsidies as most US agriculture does. And protection through import quotas.
BTW I believe US beef has tended to go for the hamburger end of the market, so I don’t know where all this quality beef comes from. Certainly they are not implementing the tracing systems we have here, so you can trace a piece of meat in the shop back to an individual cow, part of our quality assurance.
On BSE in particular, when they had a single case it struck me as something that doesn’t ring true, because a single case of BSE on a continent is pretty much impossible. There were also obvious problems in the reporting regimes in the US which were pretty much voluntary.
I’m not sure that this was fixed.
I gather that there were good strategic reasons for the Australian decisions, apart from scientific matters, that beef producers might not appreciate.
So there are tangled webs we weave.
The broader point is that the trade rules in food heavily favour the rich countries. At the WTO meeting in Cancun in 2003 the developing countries finally found solidarity and their voice, which is why negotiations ground to a halt.
In general terms small holder farms are not well placed to compete on world markets, but have been ‘opened’ up to subsidised product from rich countries, in part through the WTO but more generally through loan conditionalities imposed by the IMF and the World Bank. In some cases this has literally devastated home industries and wrecked the local markets.
Also as Tudge I think points out, the imposition of industrial farming in a top down fashion as has been the case in India has wrecked local markets without replacing them with the world markets that now bring us 25,000 items in our local supermarket. GM and industrial farming has meant debt and monocultures which has reduced diversity in local diets and increased risk. Farmer suicide has been one byproduct as it usually is with primary industry restructuring everywhere, including Australia.
But these are complex matters which can’t be lightly brushed aside by references to “polemical tracts”.
Gotta go. Seeya tonight.